Should Spotify Investors Worry About Declining Revenue Per Subscriber? – Motley Fool

Spotify (NYSE:SPOT) added 8 million paid subscribers in the second quarter, bringing its total to 138 million, the top end of the company’s guidance provided in April. And while Spotify is doing a great job adding new subscribers to its platform, the amount those subscribers are paying, on average, has fallen considerably over the last few years. Last quarter, average revenue per user (ARPU) declined 9% on a constant currency basis, or 6% when adjusting for revenue adjustments and foreign exchange headwinds.

Premium subscribers paid just 4.41 euros per month on average in the second quarter. Three years ago, Spotify’s ARPU was 5.53 euros per month during the same period. While Spotify has expanded to emerging markets with lower pricing, the bulk of the ARPU pressure comes from a shift to family plans and other bundles. In fact, Spotify said product mix shift was the dominant factor in its decline this quarter, without even mentioning geographic mix.

Spotify has experimented with raising prices in the past, but none of those experiments resulted in global price increases. It actually made it easier for some subscribers to lower the price at the start of the third quarter. The company expanded its two-person Duo plan, offering a price between individual and family plans, to more markets.

Spotify on a tablet, smartphone, and desktop.

Image source: Spotify.

The metric Spotify cares about most

Spotify’s management says its primary measuring stick of success is the ratio between